Brunei stake sale prelude to MAS facelift

Brunei stake sale prelude to MAS facelift

KUALA LUMPUR (Reuters): Malaysia's purchase of Brunei's stake in Malaysian Airline System (MAS) marks a major step toward preparing the ailing carrier for marriage with a financially- strong foreign airline, analysts said on Monday.

MAS, saddled with over US$2 billion of debts and facing a fourth straight year of losses, needs the financial muscle and know-how of a foreign partner to stay aloft.

Swissair has been mentioned as a possible partner, and on Friday Swissair parent SAirGroup said its information technology unit will run IT services for MAS.

It said the transfer of people, assets and contracts will take place within the next four months.

MAS confirmed at the weekend that the Brunei Investment Agency (BIA) on Friday sold 70 million shares or 9.09 percent in the Malaysian carrier to unidentified buyers.

Financial analysts said several government-related funds paid four ringgit ($1.05) apiece for MAS shares, a slight premium over MAS's closing price of 3.80 ringgit on Friday.

They said the government, in talks to buy a 29.09 percent stake from MAS chief Tajudin Ramli, could then sell on part of its stake to a foreign carrier.

KLM Royal Dutch and Australian carrier Qantas Airways have also been mentioned along with Swissair as possible suitors.

Analysts said they had not expected the departure of the Brunei investment arm to figure in MAS's restructuring, but offered two theories why the government decided to buy out BIA.

One theory is the move will diminish the bargaining power of Tajudin, who is widely reported to be seeking a price tag of eight ringgit a share, the price he paid when he took over MAS in 1994.

The other is that, assuming the government met Tajudin's demand, it could re-sell the shares bought from BIA at five or six ringgit, which would be more in line with analysts' current MAS valuation.

John Casey, an analyst at SG Securities, said he has a buy call on MAS and put a target price of six ringgit.

Nor Azwa Mohamad Noor, an airline analyst at KAF Seagroatt and Campbell, said the purchase from BIA would give the government more room to negotiate with new buyers.

GK Goh Securities put a revalued net asset value (RNAV) target of MAS at 5.49 ringgit, which it said reflected the carrier's present fleet value and revised net debt position, without taking into account any management rating.

"Although we believe the share price will not reach Tajudin's asking price of eight ringgit, it is quite possible that the government may include various incentives to entice a prospective buyer," it said in a research report.

"This is in addition to the fact that MAS already offers a strategic Asian exposure," it said.

The sweeteners may include scrapping some of the loss-making domestic routes and even allowing total management control.

The government currently has a golden share in the national carrier, which gives it the right to veto any board decisions.

"We dare not ascribe any values to these incentives, but foreign carriers looking for an Asian partner will have to think hard before coming to a decision," GK Goh said.

MAS last Wednesday posted a net loss of 398.04 million ringgit for the six months to September 30, against a net profit of 275.01 million in the same 1999 period.